True costs of running a financially sustainable Doctor of Medicine (MD) program

An essential component of a Doctor of Medicine (MD) qualification is training and learning in a clinical environment with supervision from experienced health professionals. This is unlike most undergraduate degrees that mainly focus on classroom learning. Universities organise and manage placements, while students are trained and supervised by experienced health professionals. These arrangements add cost allocation and relationship management complexity to the program delivery.

Program delivery is further challenged by having some arrangements based on historical handshake agreements between universities, healthcare providers and health professionals. These types of agreements usually lack well defined requirements, clear performance indicators, and comprehensive costing for delivering the MD program. While it may have worked well for years for all parties, the validity and effectiveness of these agreements might be questioned.

What are the true costs of running a financially sustainable MD program? Is the program being delivered in the most efficient way? What are the hidden and indirect costs absorbed by each party? And are the existing agreements between universities and healthcare providers clear and granular enough to guarantee consistent quality training to MD students?

Understanding the costs of clinical education

Presenting symptoms

There are just over twenty medical schools in Australia, working closely with healthcare providers and health professionals to deliver MD programs.

Universities, hospitals, and health departments are looking to cut costs, so medical schools are under pressure to deliver efficient and financially sustainable programs. All sectors are becoming aware that they should have clarity on the true cost of delivering their MD program and have strategies in place to address any challenges and issues.

The answer involves working with all stakeholders to analyse direct and indirect costs across the whole program and identifying opportunities to improve efficiencies, balance portfolios, and transition informal arrangements to transparent and healthy business relationships.

The outcome should see consistency across MD program delivery, sustained quality of work and student experience, visibility of true costs, and strategies to address any challenges.

What is the diagnosis and why it needs to be addressed?

Complex cost components and dated hand-shake agreements between medical schools and healthcare providers mask the real costs of educating the next generation of doctors. It is essential to have visibility of the true costs to develop strategies to address these issues, deliver financially sustainable programs, and ensure students continue to receive high-quality training.

There are three key areas of concern that some medical schools are likely to have:

1. Indirect and hidden cost components

As the underlying costs to train students are complex, there is no comprehensive model that provides a view of the student journey, and indirect or hidden costs incurred by all parties including support functions. Additionally, the associated costs for meeting teaching requirements needs to be clearly defined. For example, “If a student does not improve at the expected rate of the supervisor, time pressures can exist throughout the entire placement. No research was identified that quantified the cost of underperforming students on health service providers.” – Bowles, KA., et al. 2015

Comparison between funding and true costs

2. Complexity and validity of arrangements

While universities have long-term partnerships with hospitals, healthcare providers and other general practices, this relationship is becoming strained. The arrangements between universities and healthcare providers are complex. The existing agreements are not always kept up-to-date, reviewed or questioned, and often lack the clarity and granularity practically required.

There are consequences.

There is no guarantee that healthcare providers will continue to contribute to medical education without passing costs on to universities.

There is a lack of clarity around what the university and healthcare providers are gaining from these agreements.

Time allocation and resource effort are not clearly defined nor carefully monitored, resulting in inconsistent application of standards, which may put the quality of education at risk.

3. Financial pressures and inefficiencies

Universities are continuously looking to direct more funds into research, which puts pressure on medical schools to address inefficiencies. On the other hand, as Australia’s increasing and aging population puts greater demand on health services, governments are grappling with the challenge of providing increased funding to health departments. In response, there is pressure on healthcare providers to reduce their costs, which will eventually require them to deliver medical training in more innovative, effective and efficient ways. This may trigger a conversation with medical schools about the true cost of delivering MD programs or impact the quality and experience of clinical training delivered to students.

Stakeholders impacted

Getting a good understanding of the true cost of delivering an MD program is complex, owing to the range of stakeholders involved in the direct or indirect funding of the program.

1. Universities

Universities are under constant pressure to improve efficiencies, balance their programs portfolio, and find funding for more research, teaching, and student experience. Having visibility on the true cost of delivering an MD program and identifying opportunities to improve efficiencies, might help universities to free-up and direct more funding.

2. Medical Schools and Healthcare Providers

Both medical schools and healthcare providers guarantee consistent ongoing quality training to students, which incurs direct and indirect costs. They need to uphold and maintain transparent and strong relationships to be successful.

3. Health Professionals

Health professionals are under the pressure to find the right balance between fulfilling their day-to-day job and training students, due to the lack of granularity in existing agreements between some universities and healthcare providers. Clearly defining the roles, efforts and expectations will support in delivering consistent quality training.

4. Governments (Federal and State)

Governments provide subsidies to some healthcare providers that offer teaching services to students. A holistic assessment of the cost and benefits would allow governments to make informed decisions on the subsidies required.

5. Medical Students

Students who are participating in the MD programs may be under or over costed in program fees, as universities are not aware of the underlying true costs.

Approach to determining the true cost

Depending on the medical school needs and program maturity level, a fit-for-purpose methodology for each medical school can be developed to determine the true cost of the MD program delivery. A more generic approach to determining the true cost entails the below key activities:

Mapping-out students’ journey by working closely with students and stakeholders involved in program delivery

Developing a good understanding of the partnerships’ landscape between the medical school and external healthcare providers to determine opportunities for improvement

Determining areas of improvement, inefficiencies and opportunities in MD program delivery

Identifying direct and indirect cost inputs and classifying them into key cost areas

Conducting granular analysis on identified costs to determine cost drivers and ownership, and

Consolidating findings to determine the relative annual and total program costs incurred by each party to deliver the overall medical program, as illustrated below.

Program Cost (illustrative)

The graph is illustrative only, based on a recent relevant engagement delivered by Third Horizon, and does not show a true reflection of the costs associated with the MD program.

Is there an emergency?

It is a matter of taking preventive measures before it becomes an emergency. By developing a clear internal understanding of the true costs for delivering MD programs and reviewing the existing partnering agreements with healthcare providers, medical schools will be able to develop strategies to address the challenges and will be better prepared for informed discussions with governments and universities on costs and funding requirements. There are key drivers for conducting a similar review.

Higher education funding has been under review due to budget pressures, the Gonski report, and sector performance. An informed understanding of the funding model for medical programs will allow medical schools to be better prepared for unanticipated changes.

Evolving relationships and agreements will promote transparency between universities and healthcare providers. This requires an independent and comprehensive review to determine the absorbed costs associated with providing clinical learning and training to students. The outcomes of the review will allow all parties to have informed discussions and decisions on MD program funding at the appropriate time.

Some medical schools have already taken the first step by baselining the costs incurred by the school and healthcare providers to deliver their MD program. It is expected that these findings will encourage governments and other universities to start a dialogue and be at the forefront of change by undertaking a similar review.

The benefit of undertaking this work will mean universities can anticipate the following outcomes:

Australian medical schools are able to address inefficiencies, deliver a financially sustainable MD program, and develop costs strategies, allowing them to manage, reduce, and absorb hidden costs.

An ongoing and enhanced relationship between the university and healthcare providers to guarantee quality practical experience for medical students.

Improved decisions on the best use of university and healthcare providers’ time and funding to educate students.

Medical schools have a clear understanding of the highest cost drivers, seek alternative options where possible, and allocate their resources according to priorities (for example, lecture versus problem-based learning versus CPCs; or written versus OSCE style of assessment).

Next Steps

We recognise that Australian medical schools are at different maturity levels and have differing agreements with healthcare providers, so it would benefit universities to determine what cause of action is required to be on the forefront of change. Understanding true costs of their MD program will allow medical schools to review options and take action, including:

Option 1 – Absorb costs by medical school and determine implications on performance, budget, research funding, and strategies in place.

Option 2 – Balance costs within the program and medical school and determine the required offset cost saving measures, efficiency improvements, and revised program course portfolio.

Option 3 – Prepare additional funding requests for university and government to sustain the delivery of high-quality clinical training.

Option 4 – Analyse a combination of the above or other options.

Final thought, tackling the MD program challenges could just be the beginning, research and similar programs, such as nursing, may soon follow suit.